RECOVERY ZONE FACILITY BONDS: GENERAL RULES

  • The American Recovery and Reinvestment Act of 2009 (“ARRA”) authorized a new category of tax-exempt bonds called “Recovery Zone Facility Bonds.” No tax credit to the investor or payment to the Bond issuer is available (as in the case of so-called Build America Bonds).
  • There is a $15 billion national limit on the amount of these Bonds that may be issued.
  • The Bonds may be used by private entities in designated “recovery zones” for a wide range of capital projects meeting the definition of “recovery zone property.” “A “recovery zone” may be established by a local unit of government if certain statutory criteria are met.”
  • At least 95 percent of the net proceeds of the Bonds must be used for “recovery zone property.”
  • “Recovery zone property” is defined as any property to which §168 (relating to the accelerated cost recovery system) applies (or would apply but for §179 (relating to electing to expense certain depreciable business assets)) if: (a) such property was constructed, reconstructed, renovated, or acquired by purchase (as defined in §179(d)(2)) by the taxpayer after the date on which the designation of the recovery zone took effect; (b) the original use of which in the recovery zone commences with the taxpayer; and (c) substantially all of the use of which is in the recovery zone and is in the active conduct of a qualified business (as defined in §1400U-3(c)(2)) by the taxpayer in the recovery zone.
  • “Recovery zones” are areas that have been particularly hard hit by job losses. More specifically, a “recovery zone” is defined as (a) any area designated by the issuer as having significant poverty, unemployment, rate of home foreclosures, or general distress; (b) any area designated by the issuer as economically distressed by reason of the closure or realignment of a military installation purchase to the Defense Base Closure and Realignment Act of 1990; and (c) any area for which a designation as an empowerment zone or renewal community is in effect as of the effective date of ARRA, which effective date is Feb. 17, 2009.
  • The Issuer must designate the Bonds as recovery zone facility bonds.
  • Residential rental property is ineligible.
  • The following are also ineligible: any private or commercial golf course, country club, massage parlor, hot tub facility, suntan facility, racetrack or other facility used for gambling, or any store the principal business of which is the sale of alcoholic beverages for consumption off premises.
  • The general rules applicable to exempt facility bonds apply, except for the rule relating to the acquisition of existing property and the traditional volume cap under I.R.C. §146. Also, I.R.S. Form 8038 must be filed.
  • The Bonds must be issued in either 2009 or 2010.
  • Amount that can be issued in Indiana: $469,621,000.
  • Amount that can be issued in designated counties (as well as a few designated large cities) in Indiana: See below. (Note: Counties or large municipalities may waive their allocation, in which case the state may reallocate it. A county may also assign all or part of its allocation to a city or town within such county.)